Since March 13, 2020, the federal student loans were fixed at 0% interest rates and loan payments ceased. This interest-free forbearance has brought welcome relief to many student loan borrowers who have seen their finances take a hit during the COVID-19 pandemic. We call this the “student loan break”.
But the student loan break is expected to expire in mid-2023 depending on the status of various lawsuits (this being allegedly the last extension, even though Biden said it would NOT be be extended again).
After such a long hiatus, it’s safe to say that no one is thrilled to once again have to make room in their budget for student loan repayments. But it’s also important to have a plan. Here’s what you need to do to prepare for when the dreaded moment finally arrives.
When do student loans resume?
The US Department of Education has announced an eighth extension of the payment break and waiver of interest on November 22, 2022.
The student loan moratorium will continue for 60 days after June 30, 2023 or 60 days after the U.S. Department of Education can resume implementation of the student loan forgiveness program or the lawsuit to block program succeedsit doesn’t matter which comes first.
If you have set up auto-debit for your student loans, the Department of Education has removed all pre-existing auto-debit setups. As such, you will need to reset your information and accounts so that your payment is automatically debited. Check with your loan manager for more.
What happens when student loans are no longer suspended?
Two big things will happen when student loans resume. First, the interest rate on your loans will go back to its pre-Covid level. Currently, the interest rate is set at 0%. From 2023, the rate will return to the original lending rate.
Second, borrowers will have to make monthly payments on their federal student loans. These payments have been suspended since March 13, 2020.
Third, if you were past due or defaulted on your student loans before the pandemic, you will get a “new start” and your loans will return to their current status. However, this requires action on your part.
Note: Many analysts fear that some borrowers could find themselves in default when student loans resume. If you have federal loans, you need to check the status of your loan and the payment due. Don’t leave it as default!
How will student loan forgiveness be affected?
$0 payments made during the coronavirus forbearance period count towards Civil Service Loan Waiver (PSLF) and the income-contingent reimbursement discount (IDR).
If you made any payments during forbearance, request a refund immediately. You are legally entitled to a full refund of all payments made from March 13, 2020 until the end of the break in mid-2023.
Don’t delay in asking for a refund. This is something to take care of as soon as possible.
$10,000 or $20,000 loan forgiveness
Everyone is waiting for Supreme Court to rule on student loan forgiveness issue.
Some borrowers may qualify for the recently announced $10,000 or $20,000 loan forgiveness. For some borrowers (with income registered with the Ministry of Education), this will be automatic. For others, you will need to apply for this loan forgiveness.
When details about the application process emerge, we will post them here. See our full article on Biden’s General Student Loan Forgiveness Plan.
Tips for preparing for the resumption of student loan payments
The thought of having to squeeze a hefty student loan payment into a budget that’s probably already stretched might seem daunting. But don’t stress. Below, we cover 5 tips to make the transition easier.
Prepare your budget
With eight to nine months without payment, your current account may be shocked when loan repayment resumes. Unless you have opted into an Income Contingent Repayment (IDR) plan, your new payment will be the same as your payment from February 2020.
By the end of the year, visit your loan servicer’s website to verify your payment. Then replenish the new payment in your budget.
Update your contact information with your loan officer
Anyone who has moved or changed their phone number or email address should update their information with their loan officer. Your loan manager will help you manage any repayment issues that may arise.
A simple solution is to make sure you’ve set up your online account so you can view your loan status, information, and even make payments.
If you’re worried about your loan manager changing (because you may have had Fedloan or GSMR), that shouldn’t happen until a later date. So if these are your current repairers, you should contact them.
Read your loan officer’s mail
Loan servicers can send you important information about your loan status and things to keep in mind when student loans are not on hold. Be careful not to accidentally discard any communication from your repairer. Read the letters and take the necessary action.
Again, if you have set up your online loan portal, you can also opt for eStatements and see everything online.
Restart Direct Debit
To ensure that all information was accurate, all previous Direct Debit setups were removed. All borrowers will need to log into their loan officer’s website and reconfigure their direct debit settings.
This will be annoying for some borrowers, but given how much has changed in the past 20 months, it makes sense to ensure that student loan repayments are taken from the correct account.
Disable automatic payment if necessary
If you have configured automatic transfers to your 401(k) or other accounts to recover savings from suspended payments, be sure to deactivate them in January. You don’t want to accidentally overdraw once payments resume.
Consider Enrolling in an Income Driven Repayment (IDR) Plan
People who lost income in the first nine months of the pandemic may find that the old payment does not fit into the new budget. In this case, you might want enroll in an income-based repayment plan (IDR) before the end of the year.
Enrolling in an IDR plan will not restart your loan repayments prematurely. But it is important to register before your first payment is made. To enroll in the IDR plan of your choice, visit StudentAid.gov/idr. Click “Apply Now” to start the application.
Re-certify existing IDR plans
If you were previously on an income-based repayment plan, you must certify your income to ensure your payment is accurate. For Reimbursement-Only Restart, the Department of Education allows you to “self-certify” your income to ensure your IDR payment is correct.
You can self-certify your income by going to StudentAid.gov.
How to start making payments
From 2023, you will have to start repaying your student loan again. Anyone enrolled in direct debit programs will have payment drafted automatically from their Bank account. Loan officers will NOT automatically restart direct debits, so you must ensure you log in and update your information correctly.
Borrowers who have made manual payments should start sending checks or making transfers through the Loan Officers website. If you need more information about manual payments, contact your loan manager.
Recertify income when student loans resume
If you are on an IDR plan, you may need to re-certify your income. Income recertification dates have been pushed back to sometime in 2023. Your loan officer(s) should send you information about your recertification date.
You can also self-certify your income for that year only. You can do this by going to StudentAid.gov.
Do I have to repay my loans in a lump sum?
While many people have struggled over the past few months, some have managed to increase their savings and income. If you have enough money to pay off your loans, you may want to get rid of them now. You can schedule a payment to repay the loans in full to start 2023 on the right foot.
If you don’t have enough money to repay your loans in one lump sum, it may be advisable to wait for additional payments. The economy is still precarious and it could be risky to run out of savings for get rid of debt which has a manageable interest rate. Consider waiting until you can pay off all of the debt before making large additional payments.
As long as your contact and banking information is up to date with your managing agent and you’ve made the necessary changes to your direct debits, unlocking student loan repayments shouldn’t be too much of a hassle for you.
If you’ve lost income or run into difficulties over the past few months, IDR plans can help you manage your payments. Or if your financial situation is solid, you may want shop with student loan refinance lenders to see if you could be offered a lower interest rate.
There was virtually no benefit to refinancing federal loans during the 0% forbearance period. But with the resumption of payments, it could again be a strategy to consider.
Whatever your personal situation, it is important to make your plan today so that you are ready for student loan repayment tomorrow.